Walmart makes a $16 billion bet on India's booming economy

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Walmart has signed a deal to buy controlling stake in Flipkart, says Softbank CEO

Walmart has reached a deal to buy Flipkart, the largest e-commerce retailer in India, for $16 billion dollars.

Shares of Walmart Inc. dropped more than 4 per cent before the opening bell.

The deal gives Walmart more power over Amazon in its ongoing battle for e-commerce supremacy.

The deal, announced in a joint statement, values Flipkart, India's largest e-tailer by sales, at just over $20 billion.

Walmart declined to comment.

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"This investment is of enormous importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India", said Binny Bansal, Flipkart's co-founder, and group chief executive officer.

The announcement came a day after Amazon said it was injecting an extra $386 million into its Indian subsidiary.

Amazon CEO Jeff Bezos has committed to investing at least $5 billion in his company's India business, saying in 2016 that he saw "huge potential" in the country.

Sachin Bansal (right), a co-founder of Flipkart, will leave the company.

They started Flipkart with selling books online with "cash-on-delivery" facility to win the confidence of Indian consumers in online shopping. Flipkart now sells everything from mobile phones, TVs and juicers to running shoes, sofas and beauty products.

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Reuters had previously reported that Bansal and SoftBank would sell their entire stakes in Flipkart.

The remainder of the 23 per cent stake will be held by some of Flipkart's existing shareholders, including co-founder Binny Bansal, who will be the group CEO, Tencent Holdings Ltd, Tiger Global Management LLC and Microsoft Corp.

S&P lowered Walmart's outlook to negative from stable, citing increasing leverage and risks stemming from the company's spending to expand online and globally as it continues its share buyback programme. The transaction's closure is expected to occur later this calendar year. E bay had sold its operations from the country to Flipkart this past year and had taken a minority stake within the on-line retailer. However, to put this investment into perspective, $16 billion for the purchase amounts to 6.5 percent of Walmart's $245 billion market cap.

United States retail giant Walmart's buyout of Flipkart is likely to net the Indian tax department a windfall, though the process could stretch out and possibly land in litigation.

Walmart, which operates stores under various banners in 27 countries outside the US, has faced strong headwinds in its expansion.

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Supporting small business and the government program Make in India through direct procurement as well as increased opportunities for exports through global sourcing and ecommerce.

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